"Scaling out" is inferior behavior

[Buy1Sell2]

Quote from traderNik:


One of the biggest mistakes made by beginners is to miss out on the few big trades that can make your week/month - that is, to fail to capitalize on your winners. Hopefully you'll have the flexibility to adjust your strategy to take advantage of those big moves.

Actually. the system I developed which does not incorporate scaling out, is deisgned to capture the big winners. There is no need to adjust the strategy.
Your first sentence here was very correct though.

 

[ashatet]

Quote from Buy1Sell2:

Scaling out is inferior behavior. When we have a winner, it makes more sense to let it ride. Will that cause us to give back profits sometimes? Yes. However, it will keep you in the really big winners and more than offsets the savings by scaling out.

--The reason folks scale out is many times due to the fact that they took a larger position than they were comfortable with initially. In effect, they were wildly overextended. The scale out feature simply gets them back to where the total position is now of a more correct size for their account size and comfort level. In summary, they were scared when the original position was on and now have been lucky enough to get some profits and feel they can let the rest run. What happens though when the initial trade goes against? --Sometimes they let the whole trade run as losses mount. -No, it's better to size correctly and let it run to where you can exit at a time of your own choosing (borrowed line from George Bush). No sense being a weak hand.

Good post, but I scale out even if my position is 5% of my portfolio, and I am 95% cash. If you do not scale out, you are letting your position become a binary event, loss or profit.

 

[Buy1Sell2]

Quote from Buy1Sell2:

One common adage...that is completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.
William Eckhardt

The way to build [superior] long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.
Stanley Druckenmiller

Tremendous quotes here--

 

[chewbacca]

scaling in is as inferior as scaling out - seriously..........nail the entry and nail the exit

i'm saying go all in on the position without investing all your capital into it........leave plenty of capital for other positions.......leave 90% for other positions

the only smart reason to scale in/out is due to liquidity/slippage issues


guys that like to scale like to increase their win rate instead of the amount of money won.......its an ego thing

 

[ammo]

Quote from chewbacca:

scaling in is as inferior as scaling out - seriously..........nail the entry and nail the exit

i'm saying go all in on the position without investing all your capital into it........leave plenty of capital for other positions.......leave 90% for other positions

the only smart reason to scale in/out is due to liquidity/slippage issues


guys that like to scale like to increase their win rate instead of the amount of money won.......its an ego thing

i scale in because i counter trade and when its nearing a line for a bounce it doesnt always get there,, by scaling in im sure to get partially short/long if it doesnt reach the level i foresee

 

[ammo]

Quote from Thunderdog:

I wonder what the cost of that hedge would be as compared to a simple, no-nonsense protective stop. I'd love for someone to present us with a numerical, real world example illustrating the cost/benefit of such hedge as compared to a reasonably well-placed protective stop in the context of the trading strategy in question. Anyone?

similar to having an extra gun in a cop movie when they take your first one,you still have powder,to reenter or add size if the mrkt surprises you,you're short a 10 lot of spus,at 1330, you have buy stops in2@32 ,2@ 34 , 2@ 36. 4@40,mrkt takes 32 ,34, trades to 37 and you sell 6 back out ,spus dropp to 1320 and you cover,you protected your losses and increased your profits,didnt take a ton of pain so that you werent shaken out of the trade

 

[trackstar]

Scaling out is absolutely not an inferior way of trading. For 2 reasons.

1. There is no inferior way in trading, do what makes money FOR YOU.

2. Scaling out of positions takes advantage of probabilities. I always take profits in that way.

-First 1/4 is taken at the profit level of 2x my stop. This allows me to give the market room and takes advantage of the fact that I may still be wrong but get some arbitrary move. BUT now I only have the loss of half of my position.

-The rest, if successful, is ridden to my target.

Trading this way allows me to have very very very few red days. Thus smoothing out my profit curve immensely.

I believe in going into every trade with a tight stop, and a price target that is usually 8-20x the potential loss. I may only have 1 right trade a day, but chances are that I still made money.

 

[ammo]

Quote from trackstar:

Scaling out is absolutely not an inferior way of trading. For 2 reasons.

1. There is no inferior way in trading, do what makes money FOR YOU.

2. Scaling out of positions takes advantage of probabilities. I always take profits in that way.

-First 1/4 is taken at the profit level of 2x my stop. This allows me to give the market room and takes advantage of the fact that I may still be wrong but get some arbitrary move. BUT now I only have the loss of half of my position.

-The rest, if successful, is ridden to my target.

Trading this way allows me to have very very very few red days. Thus smoothing out my profit curve immensely.

I believe in going into every trade with a tight stop, and a price target that is usually 8-20x the potential loss. I may only have 1 right trade a day, but chances are that I still made money.

when u go for 8-20xyour potential loss,u have a small stop or a very large move in the mrkt,which is it?

 

[trackstar]

Quote from ammo:

when u go for 8-20xyour potential loss,u have a small stop or a very large move in the mrkt,which is it?

I have no idea what you are asking. I have both a tight stop and a decent sized move anticipated. It makes it very clear cut when I am wrong.

 

[Reaver]

A bird in the hand is worth two in the bush.

As long as adequate risk control is practiced for the downside- scaling out produces a REALIZED profit vs a mere THEORETICAL or POTENTIAL profit.

As it was stated earlier, scaling out is taking advantage of probabilities.

Either one can work just fine for a trader, but it needs to fit their method and personal appetite for risk.


The downside to it all is that you must be relentless with your downside protection, or maybe even scale out losses. The danger is that you are taking a FULL LOSS at a stop out, whereas only PARTIAL PROFITS are being realized in a scale out basis. You must ensure that you are not causing downside imbalances in your risk/reward ration by scaling out.

No one way to trade properly. It's a very dynamic situation.